NARRBEGIN: ABC Corporation ABC Corporation

NARRBEGIN: ABC Corporation
ABC Corporation
ABC Corporation has a capital structure that consists of $20 million in debt and $40 million in equity.The debt has a coupon rate of 10%,while the industry return on equity is 15%.ABC Corporation is unsure of the state of the economy in the next year.The tax rate facing the company is 40%.

-Refer to ABC Corporation.The company is considering the issue of $10 million in new debt at a rate of 10%.The funds from the new debt will be used to retire $10 million in equity.Currently,there are 1 million shares outstanding trading at $40 per share.Assuming the stock price will remain the same,what is the expected earnings per share in the next year if the company goes through with the re-capitalization?

A) $1.32
B) $1.56
C) $1.68
D) $1.76